Your business has to operate out of somewhere, and when it’s time to look for dedicated commercial space for your company, you’ll have a lot of decisions to make. And one of these decisions is whether to lease or purchase your office space.

Both options come with their own set of advantages and disadvantages, so you’d be well advised to do your due diligence and conduct a little research before deciding which option works best for your company.

So, the question remains: is it better to lease or purchase office space in Philadelphia?

Understanding the Pros and Cons of Leasing Commercial Office Space

Commercial real estate investors might assume that purchasing office space is the better way to go, but leasing office space comes with its own set of pros and cons, including the following.

Pros of Leasing Office Space

No down payment required.

As with any other types of real estate purchases, a down payment is required. However, a lease doesn’t require such a large capital investment up front. Rather, a security deposit will be required, which is typically substantially less than a conventional 20 – 25% down payment, maybe 10% with SBA loans. In Philadelphia, you frequently see landlords requesting a security deposit equal to about one or two months’ rent. Or, it could be more and varies with credit worthiness of tenant and landlord’s investment in tenant improvements for tenant.

That means you’d have a lot more capital for your business, that would otherwise have been tied up in a down payment.

No maintenance or repair obligations.

Every building will require its own fair share of maintenance and repairs over time. It’s inevitable. But where these responsibilities lie depends on whether you’re leasing, or paying a mortgage.

If you’re the rightful owner, the obligation to maintain and repair the structure lies 100% on your shoulders. That means you’ll not only have to cover the financial cost of these repairs and maintenance costs, but you’ll also have to manage such efforts.

If you’re leasing, however, these obligations often lie with the landlord, not you. This can free up a lot of effort that you can otherwise dedicate to your business.

Flexibility to expand/or contract.

If your company reaches a point where it’s time for expansion, a lease can provide you with the flexibility to grow, as opposed to being stuck with a place that you’ve purchased. Among all the factors to consider when it comes to deciding between leasing and purchasing office space in Philadelphia, one of the more important ones is flexibility to expand.

A growing business will find that a lease can provide them with a much better way to accommodate expansion as opposed to buying. With the right commercial real estate agent in your corner when you first sign the lease, you may want to add expansion contingencies and options in the lease that can provide you with the “right of first refusal” to acquire space that might become available in the office building if or when your business needs it.

Purchasing office space, on the other hand, can limit your size flexibility.

Cons of Leasing Office Space

While leasing comes with a certain set of advantages, there are some drawbacks to consider.

Potential increase in rent.

Most office leases have annual rent increases. And on a lease renewal it’s always possible that your landlord will increase your lease price. If the cost is out of your budget, you could find yourself uprooting your business to find a place with a lease price that fits in better with your budget and profit margin.

Improvements made will stay with the building.

If you decide to make any changes or upgrades to the building to better accommodate your business operations, you can’t take them with you when you go. The only person to benefit from the time, effort, and money spent on making such improvements when you leave may benefit your landlord.

Understanding the Pros and Cons of Purchasing Commercial Office Space

Now that you’re familiar with why leasing office space in Philadelphia has its pros and cons, consider those of purchasing office space.

Pros of Purchasing Office Space

Build equity.

One of the biggest perks of buying property is the opportunity to build equity – and subsequently wealth – over time. Every mortgage payment made goes towards building equity. And over time , if you maintain, and keep your property up to date , you may see the value appreciation as well.

Payments less likely to fluctuate.

Unlike rent, which can change every time it’s time to renew your lease, you can be more comfortable knowing that your mortgage payments will stay the same – assuming you’ve chosen a fixed-rate mortgage.

Opportunity to make extra income.

If you own your property, and it has extra space for the growth of your company you have the freedom to lease out a portion of it to generate extra income. Versus sub-leasing your excess leased office space which is more complicated. In the lease the Landlord may control the rate for the sublease and who you can lease to. And, who would spend the money on Tenant Improvements? In a sub lease most likely you and you can not leverage the Asset.

Make improvements to add value.

If you choose to improve your property, you can maintain and sometimes add value to it as you build equity.

Take advantage of tax benefits.

When it comes time to file your taxes, you’ll have the opportunity to deduct certain things such as property taxes, improvements, mortgage interest, and so forth.

Cons of Purchasing Office Space

Upfront cost is higher.

Buying comes with much more significant upfront capital invested costs compared to leasing. And typically you should purchase a building that is larger than your business require to accommodate future growth. This is precisely why many businesses choose to lease. In addition to the actual mortgage payments and down payment, there are several other closing costs and Due Diligence costs associated with buying property that you wouldn’t be faced with had you chosen to lease instead.

You’re responsible for maintenance and repairs.

This can just be added to the list of costs associated with owning property. When you’re the owner, the onus to maintain and repair the property is 100% on you.

At PG Commercial Real Estate, we strive to ensure that our clients know as much as they can about both sides of the coin in order to ensure that they make a sound decision that’s best for their business. Whether you decide to lease, or purchase your office space in Philadelphia, we’ll be with you every step of the way in order to ensure you enter into a solid agreement.

Collaborative office space was originally conceived by Steve Jobs for his new Pixar headquarters in Emeryville, California. He believed employees who work independently are less creative than those who work together. So he designed Pixar to provide chance encounters, giving employees the opportunity to connect, collaborate, and create.

As more tech companies adopted this approach, they observed and experienced the extensive benefits of collaborative office space:

Reduced Footprint. Traditional office spaces are based on 250-300 square feet per person. Employees in collaborative space sit at benches and managers use workstations, thus reducing space needs by up to 40 percent.

Google Space. Google took collaborative space to the next level. Perks such as gourmet food, massages, and fitness facilities are bait to attract and retain top talent. This minimizes the need for and cost of staffing companies.

Work/Life Balance. Google Space has become so attractive to employees that they don’t want to leave the office. They eat gourmet food and have their dogs at their side, enabling them to work late into the evening.

Fewer Sick Days. Wellness has become a major component of the new office environment. Healthy foods and exercise areas promote wellness, reducing time away from work.

Innovation. Collaborative space fosters creativity. Since all companies thrive on innovation, collaborative office space has become a major contributor to their success.

Brand Promotion. While collaborative space is good for the employees, the design of today’s office space has become a showroom for the company’s brand, which helps to sell the company’s products to potential clients.

The benefits of collaborative office space are too numerous and influential to ignore. That’s why so many of the world’s top companies are retrofitting their offices accordingly. Contact Peggy Gallagher, your ITRA Global Representative to re-invent your office environment!

If your company is looking to make a move one of the biggest things to consider is location, location, location. Where your company sits is huge in not only determining the type of people and clients you attract, but it also helps define your brand and how the world sees you. There are many factors to consider. Do you need to be near the port, near the turnpike, near potential employees, or your customers, near your home, etc.

If you are a fancy tech start up that wants cutting edge programmers, you want to have stylish offices in the heart of Center City. The Work where they Live Strategy. And, where your employees can grab a coffee at Starbucks on their break, get sushi for lunch, and go out for a beer with their friends after work, all within a mile or so of your location. Central Business District of Center City Philadelphia is a hub for public transportation systems for those employees living outside of the CBD. All of these factors go into creating the type of company culture you want, a young professional, intellectually curious group of people that do their best work in an open floor concept office where they have access to their colleagues and maybe even snacks!

Now if you are another type of business, maybe one that requires mostly office space but a small storage, or assembly area with double doors direct to outside, or your customers, or you, and your employees live mainly in the suburbs, Center City would probably not make sense. Your employees are in a different stage of life, they want to be home for dinner with their kids, or able to drop them off at dance and soccer practice after school. Sitting in an hour and a half of traffic on 76 doesn’t make any sense for someone who wants that type of life. The type of building and even the furnishing aren’t as important as a central location near good schools, neighborhoods, and doctor’s offices.

2 sides of a coin, both great options depending on what your company and employee’s needs are.

Is your company growing? Will you soon need to bring on a number of new people? That’s fantastic! But are you prepared for everything that comes with doing a big round of hiring? Below are some practical tips and advice of what to consider when getting ready to expand your company talent.

First and foremost if you are getting ready to do a mass hire it is likely that you will need to look at larger office locations to accommodate your growth. There are many factors that will need to be considered when making such a decision and most of them will depend on the amount of people you plan to bring onboard.

Parking

If your new location is not in a metropolitan area where most people commute via public transit you will need to consider parking availability for your new hires. Availability of on-site parking or street parking are features to consider.

Open Floor Plan vs Private offices

What kind of office plan works best for your type of business? What office equipment will you relocate? What equipment and furnishings will you buy new or lease?

Lactation Room

Did you know that as of 2010 the Affordable Care Act requires businesses to “provide a place, other than a bathroom, that is shielded from view and free from intrusion… which may be used by an employee to express breast milk.”? Since breastmilk is food a bathroom is not sanitary and should never be used for pumping breastmilk.

Snack Rooms/Eating Areas

Do your employees tend to eat out for lunch or are they health conscious and bring their lunch? If so you’ll need an adequate kitchen or snack area, along with fridges for storing lunches.

All of these are important factors to consider when getting ready to hire a large number of people that will require new office space. However the answers that will best fit your company will be directly influenced by your unique needs. The process will most likely take months to select the best possible building and floor plan for the future of your company but once your staff is settled and thriving all the planning will be worth it.

Work to Live. Live to Work. What is your business philosophy? No matter your motto why not create a space that will make work seem a little less like work and more a place you can excel at your professional.

Today’s commercial real estate trends are no longer looking for only traditional office space, which is readily available, but rather to find the unique office spaces, buildings and locations that will make a statement with a redesign. Oh, and for those that continue to lease and purchase traditional office space they too are reworking the work space into something more engaging.

What do we mean exactly? Since pictures speak 1,000 words let us show what some companies are doing to make their office space more appealing to employees. Not only do they look neat but many companies will contract with high end corporate interior designers to focus on elements of productivity, teamwork and positive energy in the designs.

For the companies that need warehouse space. Modular offices are certainly an option, check out the gallery below from PortaFab.

One of my favorite furniture design companies is Corporate Interiors, learn more about them here.

Choosing a location for your business is a big decision. Not only do you have to have a successful business model but also the staff to support your endeavors. Often times when working with clients looking to lease or purchase office space we discuss more than just the building requirements. Access to transportation, vibrant communities and many other factors that impact employee happiness.

As a Philadelphia Commercial Real Estate Broker & Tenant Rep. we LOVE Philadelphia. The History, People, Culture, Charm and the character of each of the towns that make up the vast Philadelphia Suburbs.

Here are a few Fall Events that happen in September that are a few reasons our clients and their employees love to live and work in the Greater Philadelphia area.

When renegotiating your lease it can be very helpful to have an objective, conflict free, tenant representative on your side. The tenant rep will have the appropriate knowledge and experience to balance the scales in your favor during the renegotiation with your landlord. They will also disclose who they represent in the potential lease renewal. And after reviewing your current lease and also current market conditions they can estimate, whether or not the prices in the market indicate the current lease rate is above market or in line with the market.

The upper hands that most landlords have when coming into a renegotiation of a lease are an astute knowledge of the office market and the understanding of the real cost of changing/moving offices. By bringing a tenant rep into the equation to represent you, you can be educated on the right assumptions to use, realistic assumptions concerning the cost of an alternative location, and have someone in your corner who knows the market as well as the landlord, if not better. Through their help you are more likely to get the landlord to sharpen their pencil to the greatest degree on the rent and any needed improvements. Negotiating a lease renewal is a process and an experienced professional can guide you through and assist in managing the transaction. A key ingredient to success is identifying and obtaining written lease terms from substitute locations. As we said it is a process and it takes an investment of your time and the Tenant Broker’s time. But can result in saving a company a lot of $$$ in annual fixed operating costs.

We’ve come a long way from 2010 with high vacancies and low rents. Today in Montgomery County Pennsylvania the trend line shows more demand for Class A Office Buildings than for the category of all office building types. Comparing Trend lines in the graphs below you can see a clear difference between the trend line for the average Vacancy Rate 11.8% and the Rental Rate of $26.10 per square foot per year plus electric, versus the trend lines for the averages for all Office, A,B,C. When all types of Office Buildings are added to the survey the trend line of the averages changes to a Vacancy rate of 12.1% and a Rental Rate of $23.32 per square foot per year plus electric. Of course there are ten times as many buildings in this survey of all different sizes and qualities. The survey of the Class A Office buildings consisted of 216 buildings. Over all it is easy to see that demand for Office space has continued to improve and rental rates are definitely on the rise. Put our expertise to work for you when faced with a search for an office location or a lease renewal.

Is there a relationship between Suez & Panama Canals, Philadelphia Region, and demand for Commercial Real Estate?

At C.R.E.W. Philadelphia’s Past Presidents’ Series Tuesday, May 12, 2015 held at the Philadelphia Sheraton Downtown a panel of amazing experts shared ideas and opinions to help the audience better understanding the linkages. CREW Philadelphia and its organization partner, Liberty Property Trust (LPT), and all the panel participants did a fantastic job. Here is a recap of my notes from the event: (more…)